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Electricity, Steel Hint at Economic Uptick in China

Growth in China’s electricity output picked up in March from its January-February pace.

Reuters

BEIJING—Official data shows China’s economy in the first quarter grew at its slowest pace in 18 months, but two proxies point to some resilience.

Electricity output—an indicator favored by Premier Li Keqiang over gross domestic product—and crude steel production grew faster in March than in the preceding two months. In addition, steel output in March hit a record high, the National Bureau of Statistics said.

Back in 2007, when he was party boss of Liaoning province, Mr. Li quipped that when it comes to growth data, officials might lie—but volts do not.

Electricity output in March was up 6.2% from a year earlier to 453 billion kilowatt-hours, faster than the combined 5.5% pace of January and February (the two months were counted together to limit distortions from the Lunar New Year holidays). Steel production was up 2.2% to a record 70.3 million tons. That compares with a 0.6% expansion in February and a contraction of 3.2% in January.

The data added to a sense China’s economy may have stabilized in March. Other data released Wednesday—including retail sales and industrial production—edged up from the previous two months.

In part, the uptick is seasonal: Economic activity usually is subdued during the Lunar New Year holidays and rebounds in March. But the upturn might also signal a return of confidence, however fragile, among manufacturers.

“It’s possible that some of the destocking in the manufacturing sector had run its course by March,” said Bill Adams, senior international economist for PNC Financial Services Group. An indicator for manufacturing activity in March showed large enterprises posting a strong expansion, Mr. Adams said.

Still, there’s no doubt the economy is slowing. China’s first-quarter GDP was up 7.4% from a year earlier—slightly more than analysts expected, but lower than the fourth quarter’s 7.7% and the slowest pace of growth since September 2012.

The electricity- and steel-growth numbers for March were weaker than last year’s, when the economy expanded 7.7%. Growth in electricity output in March was still well below last year’s average 7.6%. Its 5.8% expansion in the first quarter was slower than broader economic growth. Crude steel production in the month lagged behind last year’s average 7.5% growth rate.

The jury is still out on whether the upturn in steel production signifies that companies are emboldened by the government’s mini-stimulus package in recent weeks targeting a fresh building program for railways, bridges and other infrastructure.

Beijing wants steel mills to radically cut production capacity as part of its effort to shift the main driver of economic growth from heavy investment to consumer spending. But policy makers fear that forcing closures too quickly will lead to a fast drop in growth, putting more people out of work.

Some analysts say steelmakers may have boosted output in March to ensure a flow of loans from state-owned banks, which are under pressure from authorities to rein in credit.

“They’re afraid to cut or suspend output, because once they do, the banks will look to squeeze their short-term credit,” said Frank Tang, an analyst at consulting firm North Square Blue Oak.

Chinese mills may also have increased production to deal with steel prices, which have fallen 18% from last year’s high as fears over slowing growth have spread. Mills often seek to make up for slimmer margins by increase sales volume.

The return of warmer weather also could have boosted output. The construction sector, which accounts for half of China’s steel consumption, generally puts new projects on hold for the winter.

The state-backed China Iron and Steel Association has said that despite forced restructuring in the industry, there is enough steel demand from the construction of smaller cities and towns to underpin growth in steel consumption. It forecasts crude steel output in China will rise about 3% this year, to 815 million tons. Last year output grew 7.5%.